Telcos now get audit call from CAG

New Delhi: Escalating the ongoing dispute between telecom service providers and the government, the Comptroller and Auditor General of India (CAG) will audit the books of top telcos to ensure that they are not short-charging the state of its share of revenue.

The move follows independent audits of the same telcos by private audit firms, who were given the assignment by the department of telecommunications (DoT).

The telcos have been accused of under-reporting revenues, thereby transferring a lesser revenue share to DoT. The revenue share is part of the licence agreement between telcos and the government and is, effectively, payment for the use of spectrum or air waves. Interestingly, some of the disagreements between the telcos and DoT on the way the revenue share is calculated are already before the Telecom Disputes Settlement and Appellate Tribunal and the Supreme Court.

A 2002 notification authorizes CAG to access documents of telecom operators as they pay revenue share, but this option has never been exercised.

Deputy comptroller and auditor general Rekha Gupta confirmed that CAG was conducting an audit to check the extent of the revenue share. “We are looking at this in a different way this time," Gupta added.

A DoT official confirmed that the telcos had been informed.

“The letter asking the telcos for their accounting documents has just gone from DoT. The audit will happen with the (involvement of) Trai and CAG," a senior DoT official said, speaking on condition of anonymity as he is not authorized to speak to the media. “They intend to audit the firms for the three years since 2006." Trai, or the Telecom Regulatory Authority of India, is the telecom regulator.

Spokespersons for all four operators declined to comment.

CAG’s office, in recent times, has looked to access records of firms or entities where significant public interest is involved. They have asked for access to documents of special purpose vehicles that operate public assets such as highways through public-private partnerships.

According to the 11 March letter reviewed by Mint, CAG has asked for accounting records, including the total cost break-up of the telcos. This includes details of depreciation charged on fixed assets and other income.

The telcos have 15 days to send these documents to the deputy director general of accounts at DoT.

DoT ordered audits on five telcos late last year. It ordered an audit of RCom first, after a report by brokerage Kotak Securities Ltd said that there were discrepancies in revenue calculations. DoT subsequently ordered audits of the other four telcos.

The auditors were selected from a list of CAG empanelled firms. Mumbai-based Contractor, Nayak and Kishnadwala was selected to audit Bharti Airtel, Mumbai-based Chhajed and Doshi is auditing Idea Cellular Ltd, Delhi-based SK Mehta and Co. is auditing Vodafone while the books of Tata Teleservices are being examined by Delhi-based SK Mittal and Co.

Contractor Nayak and Kishnadwala submitted the Bharti report last week, while Chhajed and Doshi’s report on Idea was turned in on Tuesday, DoT officials said. “We could not open it today, but the report has come," said the DoT official cited earlier. The report on RCom, submitted by Jaipur-based Parakh and Co. in October, said that the Anil Ambani-controlled telco had underpaid licence and spectrum fees to the government to the tune of around Rs316 crore. It also claimed that there was a difference of Rs2,915 crore in the revenue reported by RCom to the telecom regulator—on the basis of which the licence and spectrum fee payable to the government is calculated—and that reported to the stock exchanges, with the bourses being given a higher figure.

The report on Vodafone is expected next week and the one on Tata is likely due by the end of next month.

“This has far-reaching consequences for RCom as there are obviously problems with their accounts. Bharti’s case is still a bit ambiguous," said an analyst at a multinational brokerage, speaking on condition of anonymity as he is not authorized to speak to the media. “Idea has not been included in this, probably because they have lesser infrastructure and integration with other international carriers, thereby lowering their chances of fudging carrier charges."

Regulatory expert Mahesh Uppal, a director at Com First (India) Pvt. Ltd, maintained that the misreporting is not a criminal situation. “If any fault is found, then they (the telcos) will appeal as hundreds of crores are involved. But then over a longer term, this could lead to the government reviewing the approach to revenue sharing with the operators, which are not uniform across services."